There has been substantial effort in bringing together the practical and theoretical aspects of the industry, tying together the knowledge of the Shariah scholars and the experience of the practitioners. However, there still remain considerable gaps – for example, between the AAIOFI standards, the knowledge and edicts issued from the Shariah scholars and the current practices of the industry.
In terms of risk-based capital in Takaful, the straightforward solution is that whatever risks you are taking the operator should be in a position to hold onto that capital. Takaful is all about managing risk. The question that arises is: should this be exactly like the conventional insurance industry or should the participants own their risk and choose to combine that risk, forming a fund that can be pooled and the risk mitigated through force of numbers, or should this become something different?
Ultimately, this always comes down to an operator’s unique selling proposition. What value can Takaful add to the market, and what work is it that you are performing within the market to justify your presence? The prevailing issue in Takaful continues to be the permissibility of risk, and what should resemble permissible risk in Takaful.
It is vital to establish guidelines that can be brought into force to determine what constitutes permissible risk, whether that risk can be deemed acceptable to the operator and ultimately whether it is insurable from a Takaful perspective. Parameters are still at a preliminary stage, but an agreement on clear guidelines has been achieved in principle.
Conceptually there are few issues that have arisen from implementation. However, transparency has proved to be the greatest challenge as risks tend to be offset with the muddling together of funds. Under the new standards many of these funds need to be carefully separated and demarcated, creating a greater number of risks that must be offset individually.
Stability has still to be achieved in regards to standards. Takaful has still to find its feet and needs to explore different perspectives and avenues before standardization comes into play. Risks are still uncertain and consensus is still to be achieved. The industry must have time to learn from its mistakes. It must also be noted that the Takaful industry has taken a huge leap in a small amount of time and self governance will remain its greatest asset. — SW